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Budget Talk: Top Tax Takeaways From Shapiro and Kenney’s Budget Proposals

April 1, 2023

Jennifer Karpchuk’s article, “Budget Talk: Top Tax Takeaways From Shapiro and Kenney’s Budget Proposals,” in The Legal Intelligencer

The Legal Intelligencer

Reprinted with permission from the March 30, 2023, edition of The Legal Intelligencer © 2023 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.

Budget Talk: Top Tax Takeaways from Governor Shapiro and Mayor Kenney’s Budget Proposals

By Jennifer W. Karpchuk

Governor Shapiro announced his first budget proposal earlier this month, including a handful of tax-related provisions. Meanwhile, Mayor Kenney announced his last budget proposal as Mayor of the City of Philadelphia.  Below are the top tax takeaways from each of the elected official’s budget proposals.

Top Tax Takeaways from Governor Shapiro’s Budget

  1. Eliminate the State Cell Phone Tax

Pennsylvania levies one of the highest taxes on cellphones in the country. The taxes are a combined 16%, between the state sales tax, local sales tax, gross receipts tax, and the fee on 911 services. Additionally, Pennsylvania is only one of six states that has a sales and use tax on top of a gross receipts tax for wireless services. The taxes are structured such that consumers pay the sales and use tax when they purchase phones and phone plans, while businesses that sell the phones and plans pay the gross receipts tax based upon their annual revenue. However, the gross receipts tax can be passed on to the consumer as a surcharge on their bills. 

Shapiro’s proposal would eliminate the 6-8% sales and use tax and the 5% gross receipts tax on wireless service providers. Yet, coupled with this reduction would be an increase in the 911 surcharge from a monthly fee of $1.65 to $2.03, with future increases tied to inflation.  It is estimated the tax elimination would cost Pennsylvania $124 million, while the 911 surcharge fee increase would raise an additional $54 million, which would go towards funding emergency services.

  1. Property Tax and Rent Relief

Governor Shapiro’s proposed budget would expand the property tax and rent payments, increasing the maximum rebate for senior citizens from $650 to $1,000 and increasing the income thresholds for those who would qualify from $35,000 to $45,000. Governor Shapiro also wants the eligibility floor to be tied to inflation, thereby allowing the elderly to benefit from the program as their Social Security payments rise with inflation.

  1. Tax Credits

Governor Shapiro also proposed new tax credits to encourage individuals to enter professions that are in short supply across the Commonwealth. The $24.7 million tax credit would be capped at $7,500 per individual over three years and would apply to anyone who earns a certification in teaching, nursing, or law enforcement as of January 2023, or moves to Pennsylvania with one.

Top Tax Takeaways from Mayor Kenney’s Budget

  1. Tax Reductions

The mayor’s proposed fiscal year 2024 budget includes reductions in both the wage tax and business income and receipts (BIRT) tax. The proposal would lower the resident wage tax from 3.79% to 3.7565%. Meanwhile, the net income portion of the BIRT would fall from 5.99% to 5.83%.  If enacted as proposed, each of these rates would be the lowest in decades. 

  1. Pausing New Property Assessments

Property assessments are necessary to determine a property owner’s property tax liability. Last year, the City issued its first new assessments in three years after reassessing and reevaluating all properties within the city limits. While some property owners did not see much change in their property’s assessment, others saw their value (and tax bill) skyrocket.  In response, a number of appeals were filed with the Office of Property Assessment (OPA) – thereby bogging down the OPA in reviewing the appeals and taking them away from their ability to perform revaluations.  Mayor Kenney’s budget proposal would freeze the tax rate and all property assessments for a year to allow the OPA to catch up on the backlog. 

Both Governor Shapiro and Mayor Kenney have important tax provisions in their budgets.  Keep an eye out over the next few months to see what, if any, of these proposals make their way into the final budgets.

Jennifer Karpchuk is the co-chair of the State and Local Tax (SALT) Controversy and Planning practice at Chamberlain Hrdlicka. She may be reached at jennifer.karpchuk@chamberlainlaw.com